admin
June 12, 2010
Erica Lee Nelson
Span, May-June, 2010
Despite some concerns in India regarding foreign direct investment (FDI), Devangshu Dutta, chief executive of the retail and consumer goods consulting firm Third Eyesight, has witnessed many improvements in the Indian supply chain as large U.S. companies, such as McDonald’s, have set up operations here.
He recalls the improvement in skills, technology and quality the company imparted to Indian vendors as it required them to meet its exacting global standards. In the retail sector, the government of India allows FDI of up to 51 percent for single-brand retailers, and 100 percent for wholesale cash and carry multi-brand outlets which are open to businesses but not individual consumers.
While multinational companies have preferred franchise models, more are now seeking joint ventures and greater control over their presence here.
Today many U.S. retailers want to own and operate their own stores in India. Dutta explains that this is motivated from the need to take advantage of core business competencies and control quality. When they are in a new market abroad, “brands that are used to retailing directly to consumers naturally want that ability,” he says.
“When you actually have the ownership it becomes that much easier to transfer knowledge, transfer skills and transfer people.”
Retail models are also an issue of geography. The U.S. market is much more consolidated with large, vertically-integrated national players, whereas the Indian market has more layers and suppliers that don’t sell directly to consumers. It is their concerns, as well as those of consumer groups and small retailers, which are reflected in the Indian government’s current policies, Dutta says. Giving the example of international fashion brands, he explains there is a feeling their deeper pockets and global brand image give them an advantage over Indian clothing brands.
That’s not to say that Indian retailers are running scared from international competition, though. Dutta believes that over time fears about increased FDI levels have decreased.
“Indian retailers have gained in scale…they feel more confident to compete now,” he says. Dutta also advises that foreign companies can help limit these fears by aiding manufacturing and supply chains in India.
“It can only be tackled by working on a model that is truly a win-win,” he says, “both for the foreign entrant and for the local economy.”
Erica Lee Nelson is a Washington, D.C.-based journalist who is studying at Jawaharlal Nehru University in New Delhi.
This article was published in Span (Issue of May-June 2010).
admin
June 2, 2010
Diwakar
Kumar
IndiaRetailing,
June 2, 2010
Customers visiting a store are looking for either the width of merchandise – the variety of product lines offered – or the depth – the number of each item or particular style of a product on offer. For most department and brand stores, a superior merchandise width generates better sales results, especially if the target audience is trendy or style conscious.
In a bid to satisfy the discerning customers, large format retailers generally focus on the width of merchandise. And for them it becomes mandatory to give the ‘feel of everything’ in a store; small format retailers, on the other hand, need to be little more strategist and know how to utilise the shelf area.
But, what is more important – width or depth?
In a poll question asked by IndiaRetailing, ‘Retailers need to focus on width – rather than depth – of merchandise to attract new customers’, 79.33 per cent of the audience supported ‘width’, 17.33 per cent went with ‘depth’, while the remaining 3.33 per cent preferred to remain neutral.
Devangshu Dutta, chief executive, Third Eyesight, says, “Depth and width are two facets of ‘variety’. For a retailer, whether depth is more important than width or vice versa depends on the retailer’s format and business model. For most large-format stores, it is certainly important to give the customer the feeling of ‘everything is available under one roof’ and initially width rather than depth is more important. However, even for large-formats, to avoid comparisons of ‘sameness’ with other large-format competitors, depth begins to become important once the initial market presence has been established.”
Dutta emphasises, “More importantly, the merchandise depth – varieties within a product category – enables the retailer to address different segments within the customer base. For a speciality retailer and its customers, clearly depth is more critical.”
“Customers are increasingly looking for novelty in product experience and this can only come through width rather than depth. One has to, however, ensure that the new offerings are relevant, otherwise this could result in increasing the working capital and possible write-offs,” thinks Viney Singh, MD, Max Hypermarket India.
Gopalakrishnan Sankar, chief executive, Reliance Footprint, says retailers need to focus on the width of collection (as well as the depth) because today discerning customers require choice in terms of brands, designs and price points. “This will cater to the varying tastes of different customer segments and also different moods of the same customer,” says Sankar.
“Depth-oriented merchandising strategy works better for specialised stores. Most apparel and FMCG-buying decisions happen within three feet from the merchandise. By that information, the visual merchandising can trigger an impulsive reaction by how the merchandise is presented – both in terms of style and value. Value comes with abundance: displaying merchandise in larger quantities reduces the perceived value and hence would be more attractive to the value-centric consumer and vice-versa,” observes Ashmit S Alag, director, Academy of Applied Arts.
“Width-based VM strategy focuses on vignette settings, where coordinated merchandise is displayed together to show how things can go together or match in design or utility. While this display technique enables the consumer to gauge the ‘width’, for the retailer it leads to more number of SKUs sold per transaction,” concludes Alag.
So, clearly, as experts point out, one doesn’t take precedence
over the other. Both width and depth of merchandise have their
roles to play and which one to focus on depends solely on the
retailer’s format and business model.
admin
May 31, 2010
Reporting
by Aniruddha Basu; Editing by Harish Nambiar
Reuters,
Mon May 31, 2010
India’s top textile firms are generating additional revenue streams by developing or selling precious real estate as land rates rise in a buoyant economy.
Bombay Dyeing & Manufacturing, Century Textiles & Industries, Provogue India and Alok Industries are some of the firms intent on developing or selling valuable land parcels to boost cash flow and cut debt.
Property prices in major Indian cities such as Mumbai and Delhi have nearly doubled in the past year, as home and office buyers return and mortgage rates are still in single digits.
Mumbai is rated among the most expensive office locations in the world.
"There are a lot of companies who have huge land banks. But the issue is market gives valuations to only those companies which have come into the market for development of these landbanks," said Kishor P Ostwal, chairman of brokerage CNI Research.
Ostwal has a "buy" rating on both Bombay Dyeing and Century who have premium large tracts in central Mumbai.
Bombay Dyeing, which has around 9 million square feet in Mumbai alone, recently sold a property to Axis Bank for 7.8 billion rupees, according to a statement by Shree Nath Commercial & Finance, the broker to the deal.
The firm has relocated its textile mills outside the island city near Pune and the land freed has been earmarked for two real estate projects in central Mumbai, Ostwal added.
Century Textiles, with 16 hectares in Worli in central Mumbai, is constructing two commercial buildings to be completed in 12-15 months.
Most old mills in Mumbai received huge tracts of land "almost free of cost" during colonial times from the British, who were keen on developing the city as textile centre for cotton because it had the right conditions, Chandrashekhar Prabhu, an urban development expert said.
"A number of mills had got land for a nominal lease for industrial use," making Mumbai an important textile producing centre, Prabhu said.
A crippling industrial strike in the early eighties saw the textile sector collapse and mills silenced. Over the past five years the state government of Maharashtra, of which Mumbai is the capital, allowed more land from textile mills to be used for real estate development.
Analysts said mill owners are finally getting to reap the benefits of this provision with land rates on the rebound.
"It is a strategic move. It would unlock financial value for the mills and help the city as well, because you would have real estate coming onto the market," said Devangshu Dutta head of Third Eyesight, a textiles consultancy.
Not all firms are developing their land, though. Alok Industries for instance, is planning to exit its real estate portfolio lock, stock and barrel to cut debt.
Alok expects about 7 billion rupees through sale of four large blocks, including properties in the heart of Mumbai.
"We should be able to sell a major chunk in a year. We have a big land parcel at Lower Parel (in central Mumbai), that’s a major portfolio. We will look at selling that property within one year," Chief Financial Officer Sunil Khandelwal said.
BUILDING TO GROW
Not all are selling land in premium metros of India. Apparel retailer Provogue India, for instance, is getting ready to launch a residential project in tier 2 cities.
Provogue is planning to launch three residential projects in Indore, Nagpur and Coimbatore by the year-end, on land owned by Prozone Enterprises in which Provogue holds 75 percent.
The first phase of the housing project will span 34 acres across the three cities, its deputy managing director, Salil Chaturvedi, said earlier this month.
The developed value in the first phase of the residential project at Indore alone was pegged at 3.5 billion rupees, Chaturvedi said.
"The question is will this prove to be a sustainable source of income or just one-time gains. That would depend on a company’s capability to handle it. Different companies would handle it differently," Third Eyesight’s Dutta said.
admin
May 28, 2010
By
Vishal Krishna
Businessworld,
May 28, 2010
Even the cautious are now convinced about the Indian recovery. The GDP projections are creeping up, production figures look good and, more importantly, demand is back. Organised retailers are heaving a sigh of relief with an uptick in sales after a bad year. But one group in the organised retail business is still not smiling: the mall owners.
The usual practice for mall owners is to have a revenue-share agreement with retailers. Most get about 5-7 per cent of monthly net sales, and if sales fall below a minimum level, the builder gets a fixed rental. A workable business model in ordinary times, this arrangement came under pressure when retail sales slumped last year. Things have improved in the past three months; sales are up 10 per cent as per industry estimates. But they are still a far cry from the 25-30 per cent growth of three years ago, which formed the basis of the revenue-share model. Some, however, believe that it is only a matter of time before the mall owners get their share. “Sales have picked up this quarter,” says Govind Shrikhande, CEO of Shoppers Stop. He says builders will have to be reasonable in their expectations and that in the long run the revenue-share model would benefit both parties.
Other experts believe that mall owners will have to think of
new ways to drive business. Either find out the right mix for
their malls, or explore the possibility of switching to commercial
or housing properties as they offer quick cash exit. “Developers
are struggling to think through what mix they can provide and
make viable in that amount of space,” says Devangshu Dutta,
CEO of Third Eyesight in India.
Throwing Anchor
When Sushil Mantri began building Mantri Square in Bangalore for
Rs 900 crore, he realised that investing in organised retail was
going to be a financial risk, and that it could also offer tremendous
rewards if it succeeds. “Most builders now have three or
four anchor tenants to increase the turnover per sq. ft,”
says Mantri, MD of Mantri Developers. He says the job on the mall
owner’s side was to engage customers. “We collect data
on the sales of retail chains in our mall on a daily basis and
then sit with them on ways to increase footfalls,” he says.
The mall owner-retailer relationship is changing too. One such change is that retailers are now pushing for sharing their revenue on usage-per-carpet area, unlike three years ago where rentals were also charged for the common area around the store. “Usually builders do revenue share with anchors and sell off the smaller stores to retailers. But the land will essentially be with the builder,” says Abhishek Malhotra, vice-president and partner of consumer practice at Booz & Company in Delhi. He says while retailers need deep pockets to survive, builders work on a yield basis for increasing revenues.
“Anchor stores in malls are beginning to pick up. But,
the mall story is still slow in India,” says Dutta. He says
smaller stores in malls are paying higher rentals and have not
been able to manage their operational expenses. Whereas, retailers
such as Shoppers Stop, Spar and Lifestyle have pared down their
rentals below Rs 60 per sq. ft to be anchor tenants in large malls
such as the 1.7-million sq. ft Mantri Square in Bangalore.
Restructuring Drive
Some believe that though macroeconomic factors such as rising
incomes and industrial development would keep the mall market
busy, only a few would survive in the future. “This is the
time that we have to expand across India, as the space will saturate
in 10 years,” says Atul Ruia, promoter of the 1.5-million
sq. ft Phoenix Mills in Mumbai, in a previous interview. The company
is expected to open 15 malls in five years and is likely to spend
over Rs 600 crore in this space.
According to property research firm Jones Lang Lasalle Meghraj (JLLM), there are over 240 malls in India and 30-40 more are expected by the end of this fiscal. “Expansion is still the buzzword in the shopping mall space,” says Shubhranshu Pani, MD of retail services at JLLM in Mumbai. But, he says, fund flows continue to remain an issue because most projects are not tied with funding bodies in a structured manner. Mall launches are also plagued with licensing issues and government clearances. Over the years, in order to attract retailers, developers have been committing deadlines they cannot realistically adhere to. This has forced retailers to go slow on their expansion plans. Retailers, therefore, want a cushion effect in the form of lower rentals or a revenue-share spread over a long period to make up for the delay.
“Large retailers in malls and standalone properties have seen a growth of 10 per cent over the past two months,” says Pinaki Ranjan Mishra, partner and national leader of consumer practice at consultancy firm Ernst & Young. He says the industry will see an upward trend because of their expansion into tier-2 and tier-3 cities, but he believes that metro properties will grow at a nominal pace. Currently, small towns have a 38 per cent share in the organised retail space, with the top 10 cities accounting for 60 per cent of organised retail penetration. But, even in tier-2 and tier-3 cities, the challenge for mall owners will be to decide what mix of retailers they want. For example, analysts say, of the 40 million sq. ft recorded by the end of 2009-10, only food courts – which occupy just 5 per cent of the space – seem to be the most profitable for mall owners.
According to Ernst & Young, retailers across various formats were resizing and relocating non-profitable stores. Last year at least 4 million sq. ft of retail space shut down. Analysts estimate that at least 2,300 stores spread across malls and prime locations were closed.
Kim Culley, an expatriate from England, has been in the mall business for 30 years. Culley is anxious about his new Rs 750-crore project in Chennai, the 1.1 million-sq. ft Express Avenue mall. “I have been in charge of malls around the world and in this business you have to be fresh,” says Culley, COO at Express Infrastructure. He says after the initial momentum of sales dies, footfalls depend entirely on the builders’ ability to pull customers with attractive promotions.
Clearly, mall owners have to innovate to survive.
[From BusinessWorld]
admin
May 24, 2010
By Vishal Krishna
Businessworld, 24 May 2010
A change in rules may have put a pause on organised retail’s expansion
Just as French retailer Carrefour prepares to launch wholesale cash-and-carry (C&C) operations – a key part of the supply chain – in India, the government stunned the organised retail companies with a clarification on the rules that govern the C&C business. Now, any retailer tying up with foreign C&C wholesale businesses can source only 25 per cent of the stock keeping units (SKUs) from such a venture.
By implication, the C&C business will effectively have to supply 75 per cent of the SKUs to kirana stores. Analysts estimate that there are more than 50 million of these small and medium businesses in India; 90 per cent of them are kirana or mom ‘n’ pop stores.
The announcement reiterates an election promise that the Congress party made, since organised retail business was perceived as a threat to the kirana stores – apart from a host of middlemen – whose owners make up a vote bank too large to ignore. The announcement also comes amid rumours that Carrefour could tie up with Kishore Biyani’s Future Group to help build their retail outlet Big Bazaar.
"This decision can affect those retailers whose front-end businesses are supported by the cash-and-carry business," says Devangshu Dutta, chief executive officer of consultancy Third Eyesight in Delhi. Bharti Wal-mart has one cash-and-carry unit that supports its front end ‘Easy Day’. There are nine such stores in the Delhi and Punjab regions.
Even Trent’s Star Bazaar, which has more than 50 stores across the country, will have to wait for its UK partner Tesco to begin C&C operations by end of this year. The government’s rationale is that letting C&C tie-ups with organised retail make sense only when kirana stores collectively are part of India’s retail growth story – estimated at $350 billion by global consulting firm Ernst & Young (E&Y).
"The wholesale C&C business will effectively give kiranas
a chance to modernise and organise their stores," says Pinaki
Ranjan Mishra, partner, consumer practice, at E&Y. Even then,
India’s retail business will be driven by the kirana stores supported
by distributors, agri-middlemen and traders.
"The policy will hurt those players who have cross holdings in both retail and C&C business," Mishra adds.
But will organised retail chains actually drive costs so low that they could wipe out the middleman through the C&C business? True, supply chain efficiencies are dismal. Kiranas, on the other hand, have very low operational expenditures on fast-moving consumer goods (FMCG) – they do not include power and labour. That allows them to drive costs way down and yet stay profitable. And with food and produce, kirana stores can mark up transport costs and still deliver cheap goods to customers, something organised retail is unable to do. Organised retail does not make profits from food; they mark down food products, but gain through impulse purchase of FMCG items.
Although tying up with the C&Cs drops supply chain costs, the government still puts organised retail on the back foot. "By 2013 all the top global retailers will be here. The success will depend entirely on changes in shopping habits," says B.S. Nagesh, vice-chairman at Shoppers Stop and interim chief executive officer, HyperCity, in Mumbai.
But the current note on what a C&C business can actually do will make front-end retail merchandising teams go back to the drawing board and realign business strategies. The C&C businesses, which include Germany’s Metro, Bharti Wal-mart, Star Bazaar-Tesco, Shoprite and Carrefour, have invested over Rs 2,500 crore in India so far. Changing the rules may not necessarily derail organised retail’s ambitions.
(From Businessworld.)
